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European banks reportedly refuse to allocate Russian securities of 3bn euros

European banks have decided not to deal with Russia in order not to be seen outside the spirit of the sanctions.

European banks reportedly refuse to allocate Russian securities of 3bn euros
Photo: Archive

Major European banks have refused to allocate Russian Eurobonds in the value of 3bn euros, The Wall Street Journal reports.

According to WSJ, the European major banks BNP Paribas, Credit Suisse Group AG, Deutsche Bank AG, HSBC and UBS Group AG have decided not to participate in allocating Russian debt securities. In mid-March, the European Central Bank suggested credit organizations should not participate in allocating Russian Eurobonds.

Before, American banks received the similar recommendation by the US Department of State, and they refused the allocation in the result. The cause in both cases was sanctions. Formally, the imposed limits do not forbid banks to invest into the Russian securities, but according to the regulators of Europe and the USA, the attracted funds can appear in Russian companies included into the sanction list.

"Nobody wants to do something that could be seen to be outside the spirit of the sanctions," said Paul McNamara, a fund manager at GAM Holding AG. The WSJ source does not exclude the possibility of the French bank Societe Generale owning the Russian "Rosbankom" or the Italian UniCredit to allocate Russian Eurobonds.

For investors, one potential concern is that it might be hard to sell the bonds on the secondary market without major trading houses standing ready to match buyers and sellers of these securities, WSJ writes. Edwin Gutierrez from Aberdeen Asset Management said in the interview that he did not see much values in Russian onds following a sharp rally the previous year. Russia’s real gross domestic product fell 3.7 per cent in 2015 and is expected to drop further this year. Facing shortfalls in the budget, the finance ministry has cut spending and is now seeking to borrow abroad, WSJ writes.

Last time, Russe entered the international debt market in September 2013. The organizers of allocating Eurobonds of 7bn euros were "VTB Capital", Deutsche Bank, Barclays, Royal Bank of Scotland, Gazprombank and "Renaissance Capital".